- Exchange-traded funds (ETFs) had another record year of inflows in 2021, nearly doubling the previous record.
- Blockbuster stock ETF flows set a new annual record, propelled by value and thematics.
- Bond ETF flows, while positive, slowed from their previous record pace.
As global economies stay on the reopening path, ETFs keep attracting massive net flows. 2020 saw US-domiciled ETFs gain $476 billion in net flows (i.e., inflows less outflows)—which broke the annual record of $470 billion set in 2017—and a new record was set in 2021.* All told, ETFs accumulated over $900 billion last year, pushing US ETF assets over $7 trillion and global ETF assets over $10 trillion. 457 new ETFs launched in 2021, representing another annual record.
Will 2022 be another blockbuster year for ETF flows? Based on momentum, it's possible. Here were the biggest ETF flow trends in 2021.
Stock ETF flows rock on
Momentum spilled over in 2021 from the prior year for most ETF categories, and that was especially the case for equity (i.e., stock) ETFs. In 2020, equity ETFs gathered $240 billion in net flows (an annual record at the time), and they once again led all categories in 2021, growing a staggering $688 billion (see US-domiciled ETF flows below). US equity ETFs, in particular, led demand for this category, gathering nearly $500 billion in net flows.
Demand shifted slightly in 2021 toward value, thematic, and other more niche stock ETFs, versus an overwhelming preference for traditional core ETFs in years past. That was particularly the case among newly-issued ETFs. Of the 335 equity ETFs launched in 2021, the average number of holdings was just 156 positions, down from an average of 450 in 2009. This may indicate a shift to less widely-held, concentrated ETFs, compared with more diversified, core ETFs that typically hold a large number of positions.
Another notable multiyear trend is the apparent shift in preference, based on flows, for stock ETFs over fixed income (i.e., bond) ETFs. Prior to 2020, bond ETFs had led annual net flows among all asset classes for several years. Beginning in 2020, stock ETFs dominated, and that trend accelerated in 2021 (see ETF flows by quarter below). Indeed, stock ETF flows outpaced bond ETF flows by at least 2x each quarter. Of course, while bond ETF flows have slowed in 2021 compared to prior years and were dwarfed by stock ETF flows, they were still positive.
ETF flows by quarter
Among the 11 US stock market sectors, cyclical sector flows generally outperformed defensive sector flows. Technology ($23 billion), financials ($22 billion), and energy ($19 billion) attracted the most net flows, while consumer staples, utilities, and telecom had the lowest net flows (see US Sector ETF flows chart). The strong energy sector flows are of note, given that was the best-performing sector, based on price performance, in 2021.
Active semi-transparent equity ETFs
Within the equity ETF category, there were other interesting trends. Following SEC approval in late 2019 and the first fund launch in April 2020, active semi-transparent equity ETFs have grown to 40 funds with $5.6 billion in total assets—of which $4.3 billion in net flows occurred in 2021.
These funds are different from traditional ETFs as they are not required to disclose holdings daily. While these types of ETFs carry similar risks and return characteristics to traditional ETFs, the structure of semi-transparent ETFs allows for the potential to capture more of the outperformance that active managers seek by mitigating some front-running and trading risks.
Exploring the ETF universe
ETF fund flows can be a useful tool in your strategy (see sidebar). But if you are exploring the ETF universe, the key is to find those that align with your objectives and risk constraints.
One tool that may be of use is Fidelity's ETF Screener, which can quickly sort through a lot of data based on the filtering selections you make. You can search for ETFs using a variety of characteristics, like the fund's objectives, fundamentals, technicals, performance, volatility, trading characteristics, tax considerations, and analyst ratings.